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Job Order Costing

used by companies that manufacture a variety of products (in batches or jobs) from a common factor or process. Costs per unit of production are determined through the use of separate job cost records which accumulate the costs incurred in the production of each job.

Process Costing

used by companies that continuously manufacture the same product using the same process or procedures over an extended period of time; typically large numbers of standardized producst. The cost per unit of production is determined by dividing the total costs associated with the factory or manufacturing process for a period by the numer of units produced over that same period.

Variable Costs

costs that vary in total with changes in volume but are the same per unit (i.e. if you buy more, the price is lowered); examples: direct labor, sales commissions

Relevant Range

the anticipated range of operating volume for a period of time. In CVP analysis, variable costs are assumed to be the same on a per unit basis within the relevant range.

Fixed Costs

costs that remain constant in total with changes in volume. Fixed costs calculated on a per unit basis change with any changes in volume

Stepped Costs

costs that change in total in a start step fashion with changes in volume of activity. In CVP analysis these costs are assumed to be either fixed or variable within the relevant range of productions and are treated as such

Mixed Costs

costs that contain both fixed and variable components. In CVP, the fixed and variable components are broken out using either a scattergraph or a high/low approach

Non-routine business decisions

decisions that are rare or unusual; they don't happen on a regular basis (i.e. make or buy decision; sell new product, etc)

Relevant Costs

future costs that are different among decision options

Direct Costs

differentiating costs associated with a specific decision option; they are ALWAYS relevant

Sunk Costs

unrecoverable past costs; already spent and should not be taken into account when making a decision (i.e. the decision to buy a new computer, the cost off your old one is a sunk cost if its not re-sellable)

Opportunity Cost

a forgone revenue under a decision option (i.e. if you buy a car, then your opportunity cost is the lost revenue you won't mak by investing that money)

Managerial Accounting

provides information designed primarily for use by a company's officers, managers, and employees to improve the business operations; no standardized info requirements; typically more detailed info; not subject to independent audit; commonly includes budgetary info and forecasts; tends to be different from business to business based on management needs

Financial Accounting

provides information designed primarily for users who are not involved in the day to day management of the business (i.e. providers of capital; government regulators); provides info through general purpose financial statements prepared in accordance with GAAP; subject to independent audit